Word games with billion dollar consequences

When every word that escapes from central bankers has the ability to rock the markets, we're reminded of the troubling level of power that these unelected officials wield, writes Satyajit Das.

Negotiating treacherous financial markets now requires more knowledge of semiotics than economics.

Twist and shout taper…

US Federal Reserve chairman Ben Bernanke has introduced the term 'taper' to the lexicon of central banking, following on from his reinvention of the 'twist'. European Central Bank president Mario Draghi's stated strategy is "whatever it takes". Economic commissioner Olli Rehn recently clarified that European policies were directed at "diluting" not "breaking" the link between banks and sovereigns.

Governor of the Australian central bank, Glenn Stevens, even attempted ill-advised humour, trying to explain a very short policy tweet by the Reserve Bank that the official cash rate would remain unchanged at 2.75 per cent per annum.

The governor's comment that despite the brevity of the tweet, the board "deliberated for a very long time" at the meeting was interpreted by financial markets as meaning that the decision was close, implying further rate cuts. The Australian dollar fell by one cent (1.10 per cent) and market pundits rushed to change forecasts.

Subsequently, deputy governor Phil Lowe, trying to rescue the governor, added that the Reserve Bank Board always deliberated for a long time, increasing the bewilderment of observers.

Sound and fury…

Detailed textual analysis, deconstructing policy maker's every word, in the manner of French semioticians Roland Barthes and Jacques Derrida, is now common. But the statements and the analysis are mainly "sound and fury, signifying nothing".

The Fed's unprecedented monetary expansion was always temporary. Confirmation that the measures would continue would admit to failure of policies designed to create a self-sustaining economic and financial recovery.

The Fed chairman also has to manage constituencies within the Federal Reserve uncomfortable with the increased role of the US central bank and foreign nations concerned about the impact of US policies on their currencies and economies. Like ECB president Draghi facing an existential crisis of the Euro, Chairman Bernanke, in reality, had little choice.

On one view, Chairman Bernanke may have been careless and loose in his language when he spoke vaguely about possibly tapering central bank support. On another, he was deliberating testing the market reaction to the eventual end of that support.

Spoken about in the past tense by the US president, Ben Bernanke may also not actually be the chairman of the Fed at the relevant decision time. The statements may have been made with the speaker's place in history in mind.

The words, of course, also may not translate into actions. Chairman Bernanke has not halted purchases of Treasury bonds or increased interest rates. The Fed may be forced to delay tapering if worsening financial conditions hurt the economy. The ECB has not implemented purchases of government bonds.

For the most part, they were vague, highly conditional statements of intention to take unspecified actions in a yet to be formulated way at some future date based on a consideration of circumstances at the relevant times - possibly!

Tapering taper damage...

'Taper' lived up to at least one of its meanings: a long wick for use in lighting a fire.

Despite the confusion about meaning, the statements had a significant impact on prices and rates, leading to large real changes in wealth. With bond and equity market increasingly volatile, one Federal Reserve member chided markets for behaving like "feral hogs" that scenting weakness in policy makers' intent try to break the central bank's resolve. The member colourfully noted that he did not want to go from "wild turkey" to "cold turkey", causing bemused non-American speakers to seek further semantic clarification.

With bond and equity market increasingly volatile, Fed officials have sought to calm unsettled markets, suggesting that the message has been "misinterpreted" or "misunderstood" causing financial markets to be "quite out of sync" with policy. Recognising the global economy's monetary morphine addiction and also the difficulty of reversing policy, US central banks officials have even suggested that existing measures could be continued or even increased, if necessary.

With interest rates of troubled European countries rising, ECB President Draghi and the governor of the Bank of England have sought to negate the Fed's taper suggestions, providing guidance that the regime of low interest rates is likely to remain in place for some time.

Credit Suisse London analyst Neville Hill termed the Bank of England's statement "forward guidance on forward guidance". Departing from previous practice, the Delphic ECB president Draghi indicated that the ECB intends to keep rates low for an extended period of time, although he refused to be drawn on exactly what extended meant.

German ECB board member Jorg Asmussen tried to assist, indicating that extended meant not more than 12 months. The ECB issued a frosty response clarifying the clarification: "No guidance was given as to the exact length of this period of time and it was not Mr Asmussen's intention to do so."

With the benefit of hindsight, central bankers generally may be better off following the approach of British prime minister Clement Attlee. During the 1951 General Election, while walking to the polling station with his wife, Prime Minister Clement Attlee was asked by a reporter: "Have you anything to say to the nation, prime minister?" Atlee responded: "No."

The pleasures of the text…

The importance of central bankers and policy makers owes much to John Maynard Keynes and Milton Friedman, who in different ways advocated greater intervention in economic affairs.

Friedman's influential 1963 book The Monetary History of the United States 1867–1960, written with Anna Schwartz, argued that the Great Depression was exacerbated by a failure of the Federal Reserve to alleviate shortages of money, triggering bank failures. By implication, financial and economic collapse could be avoided through a monetary solution.

Former Fed chairman Alan Greenspan's success in stabilising financial market conditions in 1987 by announcing the Fed's willingness "to serve as a source of liquidity to support the economic and financial system" was crucial. It paved the way for the 'Greenspan Put', giving practical credibility to central bank activism.

Provision of guidance to markets also became commonplace. Alan Greenspan's public statements full of 'constructive ambiguity' attracted financial analysts, journalists and linguists in equal numbers.

The Maestro provided guidance to interpreting his pronouncements: "I know you believe you understand what you think I said, but I am not sure you realize that what you heard is not what I meant." He further clarified his position with unusual directness: "If I have made myself clear then you have misunderstood me."

Word trouble…

The reliance on guidance and actual actions of policy makers is troubling.

Firstly, it highlights the fragility of global economies and the financial system, now extremely reliant on government support.

Secondly, the need to 'jawbone' exposes the lack of potency of policy tools, which in some cases may be approaching their limits of effectiveness or creating unintended toxic side effects, such as asset price bubbles.

Thirdly, it illustrates the difficulty of international policy coordination. The Fed announcement coincided with a decision by the Chinese central bank to tighten liquidity, exacerbating the market reaction. Given different domestic agendas, the risk of individual action becoming destabilising is high.

Fourthly, it creates uncertainty and volatility, undermining the policies themselves.

Fifthly, it points to the excessive influence of governments on markets. Successful investing now requires anticipation of official policy actions, rather than traditional analysis of fundamental factors. In this environment, price signals are misleading, distorting resource and capital allocation.

Sixthly, the process is undemocratic. Unelected officials, with limited accountability, can by their words or actions trigger large changes in prices and rates, affecting millions of citizens and businesses, both domestically and in some case internationally. These policies can result in massive transfers in real wealth, redistributing employment, income, investments and savings between individuals in a country and between nations.

Seventhly, it undermines crucial trust in institutions and policy makers.

Trapped…

Reliance on aggressive policies to resuscitate the global economy always risked 'blowback'. In its 2012/2013 annual report, the Bank for International Settlements, the banker to central banks, highlighted the problem:

Central banks cannot repair the balance sheets of households and financial institutions. Central banks cannot ensure the sustainability of fiscal finances. And, most of all, central banks cannot enact the structural economic and financial reforms needed to return economies to the real growth paths authorities and their publics both want and expect.

What central bank accommodation has done during the recovery is to borrow time - time for balance sheet repair, time for fiscal consolidation, and time for reforms to restore productivity growth.

Regrettably, the purchased time may have not been used productively, creating new dangers for the global economy without having dealt with existing problems.

The global economy and financial system cannot escape the debt overhang and structural problems, at least without pain. Policy makers are now trapped between existing policies of decreasing efficacy with increasing toxic side effects and withdrawing these measures with uncertain consequences, potentially a complete collapse. The required balance sheet repair and simultaneous correction of public finances would result in a sharp fall in aggregate demand, exacerbating not solving the problem.

Given the current "sea of troubles", the high stakes and limits to their power, central bankers unable to confront the reality have lapsed into political 'spin' and word games.

Economist Brad DeLong may have been correct when he observed in 2008: "It is either our curse or our blessing that we live in the Republic of the Central Banker."

Comments (113)

Alpo:

15 Jul 2013 7:36:35am

"The required balance sheet repair and simultaneous correction of public finances would result in a sharp fall in aggregate demand, exacerbating not solving the problem.".... Exactly. This would be the Depression We Don't Have To Have!

Alpo:

Damnthematrix:

15 Jul 2013 10:28:58am

No, we don't need a Depression....... we need a reboot.

The monetary system is broken beyond all redemption, and it will fail, and if we allow it to, in the conventional sense, there WILL BE a depression... In fact, there will be a total collapse of civilisation as we know it.

All the banksters should be sacked (hung drawn and quartered would satisfy me more.....) and all debts cancelled.

A depression is when people who can't service their debts lose everything.

The banks should do all the losing, and be closed down. After all, ALL the money they lent out was printed out of thin air monopoly money.....

Then we can start again with a debt free and zero growth economic system that will bring civilisation back to a sustainable lifestyle....

Aussie Sutra:

15 Jul 2013 4:07:36pm

What an excellent comment. Yes, we do need a reboot and a new system to emerge out of it. However, those who making the big bucks out of the current disastrous system also have the power to inflict untold damage upon billions of people before the whole thing goes belly-up.

RobW:

15 Jul 2013 11:00:21am

"CP, a "depression" is not a toy, playing with it's not funny..."

I tend to agree, look at what happened last time there was a depression. Who knows what perverse social and economic outcomes a depression could throw up. There is also no guarantee the economy would self correct before significant social instability. I understand that you can't necessarily avoid economic cycles altogether, but I don't think governments should step back and just allow economies to significantly overheat or fall into a depression.

Curious party:

15 Jul 2013 11:35:18am

I'm not even slightly wealthy.

But in any case, its not like any of us have a choice. It is a basic fact of the boom and bust style economics that we have. The more governments around the world prop up the financial bubble (by using more taxpayer money) the harder it is going to be in the end because when it does burst there will be nothing left for them to use to help us to recover.

Curious party:

15 Jul 2013 11:45:26am

Don't get me wrong Alpo - when I talk about politicians stuffing it up I mean politicians enacting policies that will pass on all the costs of the depression to the poorer people (by cutting government services etc) rather than to the comparatively more wealthy people (by removing such horribly regressive tax breaks such as negative gearing).

As far as I am concerned the biggest cost that we have which is unnecessarily high is accommodation. House values need to drop from their speculated heights.

A good government could then buy up all of the second/third investment properties (which are no longer affordable without negative gearing) at firesale rates and we would then have a much larger stock of social/affordable housing available.

Then again a good government would already be investing in infrastructure such as transport and power and this would reduce the other major drains on cost of living.

But when did we last have a good government? (I think it was the 70s.)

din:

Damnthematrix:

15 Jul 2013 3:17:22pm

Yeah right........ that's worked so well all over Europe....

Spain, Italy, Portugal, France, Ireland, Greece, Belgium (more?) have ALL ditched their governments, switching from L to R or R to L, no matter wha was in, and the place is in a worse mess now than before.....

It's not the governments at fault, it's CAPITALISM ITSELF...... FIAT money, growth at any cost, and printing trillions out of thin air...

v:

Agreed. There is nothing funny about a depression. Just ask the people of the Third World, who have been paying the cost of keeping the western economy afloat for the past forty years.

But Curious party does have a point.

Depressions are caused by a fundamental weakness in capitalist markets known as the "Surplus Value" effect. This weakness results in an intrinsic, divergent instability within capitalist markets. The "Surplus Value" effect results from imbalances in power between employers and employees, which allow employers to accumulate wealth faster than they can spend it. To be brief, this results in large amounts of wealth accumulating in a small number of pockets, and this in turn starves the market of liquid wealth with which to fund demand. This results in a fall in demand, which results in a reduction in production, staff layoffs and downward pressure on wages. This further restricts liquid wealth int he market place, creating a downward spiral to depression.

Keynes identified the correct response: strong fiscal stimulation, aimed at the lowest income-earners (who have the highest "Marginal Propensity to Cconsume), and funded by increased taxes at the big end of town (wealth taxes are particularly effective in this respect).

The result of the Keynsian approach is to transfer wealth from the ossified bank accounts of mega-corporations and their shareholders, to the pockets of the lowest-paid, so that they can spend it and drive demand in the market.

Such action is most effective if delivered quickly, as soon as signs of weakening appear. Australia did this and has weathered the early phases of this crisis much better than the Europeans, who opted for Abbott-esque "austerity" and killed their domestic economies. But it could actually take a full-bown depression to wake idiots like Merkel up to themselves.

John:

I think I think:

15 Jul 2013 2:41:02pm

"Dragged the rich man down"

As it should be. Wealth is not a measure of greatness. No one deserves to be wealthy at the expense of other people. Wealthy people are a leech that have built their own legend of superiority and status in society.

The fact is they can only become wealthy by treading on the shoulders of those in weaker positions of power. It is only fair those people rise up every now and then to set the ledger straight.

And your theory that everyone has to be poor if that happens is ridiculous.

lazarus:

15 Jul 2013 3:24:40pm

Because the rich man gave up when he couldn't earn his next million, ROFLMAO. You are right though, the revolution is the rich paying their way. If they want social stability and it's associated advantages they should pay for it.

v:

15 Jul 2013 3:44:53pm

john,

"and eventually the poorer man dragged the rich man down with Mr.Revolution's help and then both were poor."

The best way of ensuring universal poverty is to encourage the hoarding of wealth for wealth's sake. The best way to boost the wealth of the entire economy is to ensure that wealth is not allowed to ossify in the bank accounts of the few. Wealth is similar in nature to light: made up of particles (or waves) that only exist while in motion. Wealth is the same. If it stagnates in the bank accounts of teh wealthy, it is not available to the market and a shortfall in demand when compared to production is the inevitable result.

In a stable system, any extra wealth accumulated by an individual would make it more difficult for the individual to further increase their wealth. But capitalism is not a stable system. A little extra wealth or a slight market advantage feeds back into the system and, at each iteration, becomes stronger. This is why capitalist markets ALWAYS tend toward monopoly and why capitalist markets periodically collapse in catastrophic fashion, killing millions of innocent people and destroying decades of patient social development.

There are very strong ehtical and moral arguments that support the case for social equity and damn your silly arguments to where they belong (the pre-school). But, to my mind, the most important argument against the type of unregulated jungle you appear to favour is that they simply do not work. They do not do what economies are supposed to do (serve the needs and wants of citizens in a satisfactory and sustainable manner) and they never have.

It IS possible to have a stable economic system, but it is not possible to have a stable capitalist system. We can, however, retain a semblance of stability through the use of Keynsian techniques to continuously transfer wealth from the top end to the bottom end of the income scale. This mitigates the damage done by hoarding and ensures that those most likely to spend their money in the market where it does most good, have the resources they need to drive demand.

v:

15 Jul 2013 4:01:38pm

sadstate,

"The last depression was soon followed by a World War."

And the previous one as well. People forget that capitalism has been plagued throughout its history by catastrophic depressions that have killed millions, forced mass migrations and set social development back by many decades. The "Great Depression" was not an abberation - it was a part of the normal operation of the capitalist system.

Depressions are caused by "demand droughts". And demand droughts are caused by the unregulated accumulation of "surplus value" (wealth derived from 'super-profits') in a decreasing number of bank accounts. The only way to correct this is to "liberate" or "mobilise" idle wealth and, unfortunately, warfare is a very effective way in which to "mobilise" this ossified wealth.

Wars can do wonders for capitalist economies because they effectively create unlimited demand while they are happening and, in the aftermath, create decades of reconstruction work that does not just replace existing plant and equipment, but modernises it at the same time.

At the moment, we have a unique opportunity. Over the next ten years or so, we need to re-build the economy from the ground up if we are to avoid catastrophic climate change. This time we didn't need destructive and pointless war. The technology upon which our economy (energy from hydrocarbons) has depended for two hundred years is obsolete. We need to re-build our factories and power stations, re-think that way we use energy, dispose of redundant or dirty corporations and replace them with sustainable, ethical entities that work FOR, rather than AGAINST the interests of humanity.

This will create a huge surge in demand that could power the economy along for decades. Rather than ducking and weaving, we should be embracing the challenge of climate change and using it as an opportunity to revive and rejuvinate our tired adn unworkable economic system. It may look expensive, but have you ever heard of a cheap world war?

v:

15 Jul 2013 11:41:25am

Curious,

"We need to have a depression."

You may well get your wish.

Our global economy has been in a state of technical recession for nearly 40 years, but, as citizens of affluent and powerful nations, westerners like us have been shielded from this unprecedented economic disaster by wealth squeezed out of the people of the third world by corporations whose shareholders live in rich, western nations.

In 1973, the Arab nations got together and demanded a fair price for the petroleum being extracted from their countries by western corporations. This triggered what became known as the "Arab Oil Shock" but, in effect, the "Shock" was simply a catalyst that exposed an enormous 'oversupply crisis'. The recession that followed dented the credibility of the previously favoured (because it worked) Keynsian model of monetary and fiscal policy and allowed the resurrection of the "neo-classical" model widely credited with causing and intensifying the Great Depression.

What we have seen for the past forty years is steady economic decline across all western nations, masked by trillions of dollars in wealth that has been plundered from the third world.

The GFC was simply an acknowledgement that this unsustainable level of theft had finally sucked the third world dry and that there was no more "free wealth" to be had.

Whether the lingering, chronic recession that has gripped the world for the past forty years results in full-blown depression depends largely on the response of policy makers. Returning to the tried and proven Keynsian principles of fiscal and monetary management may result in a recovery, or it may already be too late. But a continuation of the slavish devotion to the irrational and ideologically-driven nonsense (neo-classical economics) that brought this crisis about in the first place will guarantee a depression that will make the Great Depression seem like a lost penny.

Tax the Churches:

15 Jul 2013 3:51:29pm

Just talking about Depression is depressing enough... Would that do?

Of the market I don't give a rat's arse. Manipulated by a handful of people who don't produce a single tooth pick and operate on the fringes of humanity. They don't supply my sustenance, cook for me, or do my dishes.

I put in a hard day's work in return for reasonable living standards and I deeply resent that someone who hasn't lifted a finger on my behalf is able and permitted(!) to piss into my soup at will.

It's called Neo-Feudalism and only short of the "right for the first night".

jules:

Alpo, perhaps you should have included the slightly fuller quote from the bank for international settlements:

"Central banks cannot repair the balance sheets of households and financial institutions. Central banks cannot ensure the sustainability of fiscal finances. And, most of all, central banks cannot enact the structural economic and financial reforms needed to return economies to the real growth paths authorities and their publics both want and expect.

What central bank accommodation has done during the recovery is to borrow time - time for balance sheet repair, time for fiscal consolidation, and time for reforms to restore productivity growth."

Because the reforms have not been made, we are now in the position that, as Satyajit Das says,:

"the purchased time may have not been used productively, creating new dangers for the global economy without having dealt with existing problems."

and as a result:

"The required balance sheet repair and simultaneous correction of public finances would result in a sharp fall in aggregate demand, exacerbating not solving the problem.

S.D. is clearly suggesting that if there was a time when we could have made necessary changes painlessly it has passed. Unfortunately the reforms are still necessary. It's a bit like the NSW Labor party structure.

Aussie Sutra:

15 Jul 2013 4:05:19pm

No matter what happens, it will never be called a "depression" because the terminology has been retired, officially. They will parse whatever kind of nonsense they have to in order to not call a spade a spade.

Sydney Bob:

bobtonnor:

15 Jul 2013 10:47:06am

I agree, the secondary market is all about perception, that perception is always going to be based on something, tea leaves, balance sheets, comments from the reserve it does not matter which method is used it is all about what he market assumes or percieves. I cant remember who it was who did this, a chart was shown of the dow over a 15 year period, the bigger moves normally corresponded with the front page of one of the largest business weeklys in the US, seems obvious really but the catch was the dow followed the business weekly, people read into it what they wanted and followed the news.

v:

"The problem isn't Bernanke or our Stevens, the problem lies with the interpretation of their comments," Well said. Couldn't have put it better myself.

"There's no way to stop this so don't even try." Errant rubbish!

You are quite right in identifying the main problem. Heads of reserve banks SHOULD be able to speak the truth and even make little jokes without our entire financial system collapsing in a heap or shooting through the roof like a bottle rocket.

There was a story in the news this morning about childcare workers fighting a campaign for some recognition of the valuable work they do and for pay rates that reflect the importance of their work.

The solution to both the childcare workers' problem and the crazy instability of financial markets is quite simple.

Legislate to limit the salary of money market analysts to that currently being paud to childcare workers, and simulatenously raise the pay of childcare workers to that of a money-market analyst.

Childcare workers are prepared to work for chicken-feed because they care about their job and it MATTER whether they do it properly or not. Money market analysts are either the most incompetent people in the world, or just don't give a stuff. They would not work for what a childcare worker currently gets, so we would be able to rid the world of this parasitic profession and maybe even get some useful work out of these clowns.

Reinhard:

15 Jul 2013 5:09:44pm

There is a way John, and it's called consistency. If the Fed Reserve chairman / RBA governor would simply refrain from using new terminology like "taper" or "twist" it won't give anyone an excuse to misinterpret it.

Daniel:

15 Jul 2013 8:41:51am

When prices sre based on actual value, supply, demand they change with those factors. When a market is largely speculative prices are based on guesswork, crystal balls and srastics. Speculative markets respond to FUD and rumour and emotion as much or more than changes in actual values. A genuine market can add value but speculation just moves money around and siphons some of it away to speculators. Why should we care about the profits of speculators or the movements of parasitic markets? If it is vulnerable to talking down then its not grounded in reality and we should let it float away.

david george:

15 Jul 2013 9:20:50am

'When prices sre based on actual value, supply, demand they change with those factors.'Most people know the price of everything, however the value of nothing. Are you like that too ? When you talk about 'actual value' are you indirectly referring to the gold standard ?

Daniel:

15 Jul 2013 12:04:23pm

Nope I don't equate gold with value. Gold is a classic example of a speculative market. The price goes all over the place.Many of our macro economic problems stem from the chicago school failing to revise their models after dropping the gold standard. They don't understand money.

Value is easy with physical objects - how much does is cost to make or for some things how much would I pay to have it.

For shares or property the value would be the rent or dividends paid. If you are relying on capital gains or rising share prices you're speculating. And where the price is clearly disconnected from those values is a speculative market.

v:

"When you talk about 'actual value' are you indirectly referring to the gold standard ?"

Why on earth would he say something silly like that?

The 'actual value' of a commodity or service is determined by how useful that commodity or service is to the purchaser. It is also called the 'utility value'.

Now, utility value is added to a commodity or service by the expenditure of human labour power in transforming raw materials into something of use. Even gold is without value until human labour power is expended in its discovery, extraction and transport to market.

The "gold standard" was a mechanism designed to stabilise international financial markets and ensure that the mad behaviour of the 1920s and early 30s could not be repeated. Governments were required to "back up" their currencies with gold reserves to prevent any repeat of the sudden loss of confidence in currency that was experienced in '30s.

Australia had a "gold reserve". Peter Costello sold it off for about $200 an ounce. It is now worth about eight times this amount. Well done Mr Costalot.

bobtonnor:

15 Jul 2013 11:32:34am

and lets be honest what is wrong with speculation? really? would you go out and buy a house if you didnt think it was going to increase in value as opposed to one that you knew would not increase? Why do you assume that a genuine market (whatever that is) can add value whereas a speculative one cant, if you read through the balance sheets of a company, analyse the management of that company and decide to buy its stock , whether this is by way of an initial offering or on the secondary market what are you hoping to acheive? profit, if you decide to purchase stock because dave down the pub told you the stock would soar what are you hoping to achieve? profit, so where is the difference?

Daniel:

15 Jul 2013 12:56:23pm

Of course I'd buy a house that wasn't going to go up in value. I'd be getting a house, to live in. Yes I'd prefer one I knew would go up but I'd much rather a system where the price wasn't based on a speculative bubble and unsustainable.Buildings depreciate so either drop in value or require maintenance or some combination of both. Land will go up with increased population, rising wages. Most of the gain is from the speculative pressure though.

As for is speculation bad. It distorts prices, which is bad. It can price normal consumers or investors out of the market. It correlates strongly with business temptation to commit fraud. But the worst thing is when other people or business change their behavior to accommodate speculators. Politicians who pass bad legislation to increase speculators gains or protect them from losses. The strange idea that we should always be afraid of talking down the market by being honest. Or in the USA where none of the banks can even be investigated because the speculative share market will collapse their value at even the idea of a real investigation. That's dangerous and bad.

v:

"When prices sre based on actual value, supply, demand they change with those factors."

You are describing a "FREE" market. We have what you call a "capitalist" market, which is a very different thing.

The "free" market is an imaginary system conceived by Adam Smith to illustrate how he imagined capitalism could work under ideal conditions and, as a young "nerd" living in the cloistered surroundings of an eighteenth-century university. he even believed that such a beast was possible in the real world. His experiences of commerce and, in particular the slave trade, as an older and more mature person eventually led him to conclude that unbridled capitalist markets were the very antithesis of the "free" market.

The behaviour we are talking about here is the behaviour of people who trade, but have nothing to trade. The "assets" they swap backwards and forward have no value at all. As a matter of fact, they don't even exist in any form that we would normally recognise as "existing". If an alien spaceship made a lightning raid and stole all of our money-market traders, stockbrokers, futures traders, investment advisors and currency traders, it would be a very long time before anyone noticed the difference. They produce nothing and yet extract obscene amounts of wealth from our economy. And this wealth did not grow on trees. Somebody had to produce it by making something useful. And there is a very good chance is that the person who made somethng useful to fund the lifestyles of our robber/traders spends his or her life working in a Bangldeshi sweat-shop for 20c a day so that these parasites can "act and look professional".

GraemeF:

15 Jul 2013 3:57:11pm

Smith's markets were based on the concept that all people were 'rational and selfish'. This is a false statement yet a whole economic philosophy was constructed on it, mainly by people who were selfish and irrational.

Ray Manta:

15 Jul 2013 8:44:26am

An excellent analysis of linguistic puffery (ie. deceit) from the land whose military wordsmiths gave us "collateral damage" and "escalate." Deconstruction of the camouflaged language employed by the nominal leaders in their field confirms my own thesis that economics is as much a pseudo-science as chiropractory. Neither should be taught in universities.

Nothing To See Here:

15 Jul 2013 9:08:12am

I put the lions share of blame on shareholders.If you have shares you are making a gambling decision.... win or lose.... but it seems when things are going good the shareholder wins.... when things go bad the taxpaying public has to bail out the shareholders.If you are a shareholder you should take responsibility for the cost of your gambling decision, not suckle from the public purse.

Paul By The Bay:

15 Jul 2013 9:33:16am

I tend to agree but there are two types of shareholders. There are the speculators who drive the market by incessant buying and selling and there are those real shareholders who purchase and hold their shares, participating in the company's profits and losses.

The latter group comprise only 3% of shareholders and don't damage the market or the economy. Interestingly, it's this group that make the most long term profit, witness Warren Buffet. The rest should pay much higher capital gains to curb their appetite for the punt.

However, stock market gambling is one of the few forms of gambling in Australia that is already taxed. I can't imagine the speculators queuing up to pay more tax.

GJA:

15 Jul 2013 11:55:02am

I agree, to a point, but there are many people in the sharemarket relying on automation to make the decisions, with split-second updates hundreds of times a day, and those algorithms are regulation only by special pleading or freezes imposed on specific stocks. This kind of operation has triggered massive falls, but no equivalent gains that I'm aware of.

v:

15 Jul 2013 2:38:01pm

paul,

"The latter group comprise only 3% of shareholders"

This is a meaningless statement.

The simple fact is that the stock markets of the world are controlled by about 3% of shareholders, who own or control nearly all of the shares available. The "serious investors" may be numerous, but they control no companies, are unrepresented on corporate boards and find their fortunes entirely at the mercy of the cowboys and speculators.

"I can't imagine the speculators queuing up to pay more tax." Neither can I. Perhaps we need to go out an hunt them with tasers and nets. Not taxing somebody simply because they don't want to pay tax is a very poor way of governing a country and we are not likely to see something as ridiculous as this unless we stuff up and end up with Abbott in charge.

v:

15 Jul 2013 2:48:29pm

NTSH,

"If you are a shareholder you should take responsibility "

You misunderstand what a "shareholder" is.

Shareholders hold shares in entities called "corporations" or, to be more precise, "limited liability corporations". Now, the "limited liability" bit is the interesting bit. Basically, it means that the liability of shareholders for any damage or loss caused by the activities of their corporation, is limited to the nominal value of the corporation. In other words, regardless of how much damage your corporation causes, no matter how many lives it ruins, the shareholders are effectively excused from any responsibility for those acts. Mind you, they are still entitled to rake in ALL of their dividends.

So, "limited liability" is effectively a mechainsm designed to protect shareholders from any responsibility for the actions of the assets they own.

Imagine that I owned a car worth $500 and the handbrake failed, causing the car to career through an antique shop. It is reasonable to expect that, as the owner of the car, I would be resonsible for ALL of the damage. But, if we apply the same rules as apply to shareholders and their corporations, my liability for the damage would be limited to $500 regardless fo the actual value of the damage.

Being human is about accepting responsibility. No wonder we are in such a parlous state when we hero-worship the shirkers.

Mr Zeitgeist:

15 Jul 2013 9:13:25am

We are continually lectured by the neo-liberals that the deregulated free market is the best way to run and economy and therefore, society.The fickleness of markets is never alluded to by those acolytes of Rand, Hayek and Friedman.We also know that the markets only direct money to where there is the greatest return, NOT where there is the greatest need. Solution? Nationalise the the financial sector so that resources go to where they are required.

Alpo:

15 Jul 2013 9:34:06am

Hi Mr Zeitgeist, may I suggest to delete Rand from your list?... She wasn't an economist, she wasn't a real philosopher either and she was a truly poor and boring novelist. Her memory is just kept alive by a bunch of deluded American conservatives.... that's all.

v:

15 Jul 2013 3:04:47pm

Alpo,

"She wasn't an economist"

Neither were Hayek and Friedman. They were simply "free market ideologues" who CLAIMED to be economists but REFUSED to accept the rational conclusions of their own science. Their work is of a similar quality and character to that produced by the climate change denial industry, the tobacco industry regarding the dangers of smoking, and the "creation scientists" who wish to infect the teaching of science with religious dogma.

If you want to understand capitalist economics, it is best to stick with the real political-economists: Smith, Marx, Bukharin, Keynes, who actually treated study of the economy as an intellectual exercise and applied sound, scientific principles. Their analysis has proven eerily prescient over the years - even to the extent of predicting the behaviour of bankers, traders and other spivs in the GFC, nearly two centuries before the event.

v:

The young, nerdish Adam Smith would have agreed with you whole-heartedly. But that was before he ventured out from behind the university walls and saw the "free market" (including slave trade) in operation. As a MATURE person, Smith was a stauch advocate AGAINST "free-market" capitalism because he realised that the "free market" is essentially a myth. It cannot exist. Regardless of how "free" a market is in its initial state, it will inevitably tend toward concentration and monopoly.

The idea that the "free market" is a holy grail that will solve all of the world's problems and ensure peace, harmony and prosperity is easily deflated by a quick perusal of the history of the world over the past three hundred years.

The "free market" creates warfare, famine, corruption, political repression and, in its mature form (plutocratic rule) is indistinguishable from fascism. People ofter judge historical figures by the number of deaths that can be attributed to them. So people like Stalin, Churchill, Hitler, Mao, Pol Pot etc are often condemned as being monsters, based on their murderous ways. But, if you put all of the deaths caused by all of these "monsters" over th epast three hundred years and compare them with the misery, destruction, famine, warfare and environmental destruction wreaked upon humanity by the "free market" over the same period, the work of the "monsters" would look truly insignificant.

Drop the prostheltising - the "free market" is not a god. And neither is it a panacea. For the past three hundred years, the salvish devotion of those with small minds to this ridiculous fantasy has been responsible for more chaos, destruction, death and misery than any other single phenomenon in human history.

The free market has not saved the world, it has almost destroyed our home and made us the slaves of mindless, misanthropic corporations. We owe it nothing. (But humanity owes its salesmen a hiding).

Pat:

15 Jul 2013 12:27:51pm

@Mr Zeitgeist, It has been tried. Remember the Socialism and Communism. Remember the State banks. Remember the Fanny May and Freddy Mac. The problem is that - it is always few who control the finances. It is either on behalf of few rich capitalists or on behalf of the state. Controlling the money on behalf of the state creates another problem. Lack of accountability and corruption due the incompatibility of the social justice and free market. Social justice would require those entrusted with money control, to provide money to those most in need. However, on most occasions, those most in need are not the ones who can repay the loans. Therefore the state would need to continue to print more and more money. We all know what results money printing has on the economy.

Mr Zeitgeist:

Fair call, Pat. We have yet to see a good example of the 'mixed economy' however we did once have a Commonwealth Bank (thank you, Paul Keating) and State banks.

Now we have dynamic and volatile economies which are more highly exposed to the infantile ideologies of economic rationalism.

If America were to lift the trade embargo on Cuba, there would be a fair chance we would see a nation who clearly has the most advanced education and healthcare policies in the region, advance to becoming something of an economic power in sugar and salsa!

v:

15 Jul 2013 4:32:56pm

Pat,

"Remember the Socialism and Communism"

Yes, I remember. I remember a country that raisied its adult literacy level from 5% to 95% in the space of a decade, maintained the world's fastest rate of economic and social development for nearly seventy years, carried most of the burden of World War Two and, in the process, defeated the most powerful armed force on earth at the time and kept much of Africa out of famine for decades. The Soviet Union was a HUGE success, and a good example of what socialism can achieve. Had socialism been allowed to fully mature (the Soviet Union's economy was still mostly capitalist in nature) in the Soviet Union, there is little doubt that the people would be better off than they are now. As a matter of fact the vast majority of Soviet Citizens wer far better off under the CCCP than they are now,

But we don't have to look backwards. Last year, for the first in living memory, percentage of humanity living in poverty fell. Oh, don't worry, it continued to grow in Africa, Asia, Europe, Australia and North America. But this continuing deterioration was cancelled out by the miracle occuring in Latin America, where socialism is breathing new life in to societies bled dry by capitalism for over a century. The decline in poverty in the Bolivaran nations has been so profound that it has actually distorted our measurement of poverty.

If you want to compare socialist economics and civil society with capitalism, compare Cuba with Haiti. Both are around the same size with similar populations and demographics. Both started in pretty much the same state. Cuba's socialist economy has delivered steadily improving lifestyles for its population, better human rights and a strong democracy. Haiti's "free market" development model has produced a failed state run by gangsters and rogue corporations in which the citizen has no rights and is entirely expendable.

You can chant your mantras all you like. The simple fact is that history shows socialism to be the next step for humanity on the long road to democracy and prosperity.

v:

"We are continually lectured by the neo-liberals that the deregulated free market is the best way to run and economy and therefore, society."

I had already discovered the flaw in their thinking at the tender age of eight.

We used to play marbles at school and, in many ways, the "market" for marbles in our playground was perhaps the purest example of a truly "free" market I have experienced.

I was an ordinary marble player with no special talent. But I did manage to acquire an enormous steel marble (a bll from a very large ball bearing), which gave me a distinct market advantage. It was the largest and most unusual marble, and therefore the most valuable.

The slight edge this gave me in the market allowed me to amass a fortune in marbles in a very short time and I had to bring a partner into the business simply to help me carry the marbles home each day.

Suddenly the marble economy crashed. Parents got sick of buying new marbles for their kids and kids lost interest in playing marbles simply because they didn't have any marbles - me and Dave had them all.

Smith was right to conclude that the "free market" was an impossibility.

Peter of Melbourne:

15 Jul 2013 4:00:11pm

Within 40 years or so there will be 15 billion humans on this planet all wanting their slice and 95% of them will be virtual slaves to 5%. That is the economics of unsustainable human population growth and what the current system is designed to exploit to the fullest. A starting solution to dismantling it is to dose all foreign aid with oral contraceptives and implementing other preferably nonlethal solutions to such issues.

Your solution however has been tried unsuccessfully by the Soviets and was totally corrupted by those at the very top. There is the core problem when political elites gain power they have not earned, look at our own society where politicians will enable new laws and fines to limit people rather than dealing with core issues. I have never been a fan of extortion whether it is by criminals, business or Government agencies.

Bighead1883:

15 Jul 2013 9:25:53am

The Financial Times drily noted that: "Central bankers ... should never, ever attempt humour..."Well there is a world of difference between our central bankers and those of the US Fed Res and the EU,our central bank is still sovereign,the others are privately owned.The Financial Times should find that humorous,as it knows this.Also when Labor are returned they should look closely at taxing the HFT and derivative trading done by the banks in order to slow or cease these,in my view fraudulent practices.These trades are self generating continual insider trading that cripple the fiscal dealings of super/future and sovereign wealth funds and are done only to rip and skim these funds of any profit and principle by hedging their toxic CDO`s,[yes this is still going on,more now than prior the GFC].The US budget of the Congressional Progressive Caucus for 2012 has this in their "People`s Budget"http://cpc.grijalva.house.gov/the-peoples-budget/ Futhermore the US Fed Res is holding 1.8 trillion stimulus USD for the banks that are not lending out[they fear massive inflation because of the massive Q/E].The US Fed Res has cashed up the banks as a debt to the US people by swapping stimulus money for US Treasury bonds.Socialised debts and privatised profits.This fraud on people in the US and the EU[doing the same as the US Fed Res]has to come unstuck as more and more people find out this truth,because these Central Bankers[who actually no sense of humour and run their own Ponzi scheme] have set up perpetual and never ending debt,ruling the West unelected.

trevor Howard:

15 Jul 2013 9:32:59am

The power of the unelected that bypass reality and purport answers without credence , The stock in trade of many Nat fest minority demonstrators who hog the media limelight, and trigger condolences by extravagant of suggestion

Reinhard:

15 Jul 2013 9:40:21am

Words a powerful tool, and semantic distortion provides the unscrupulous with a powerful weapon , all too often we have seen politicians and a biased media twist the words of the RBA governor or Treasurer to suit their agenda. We still occasionally hear the ludicrous distortions of Hockey and Abbott rehashing Swan's "emergency rates" of 2009, totally ignoring the fact that conditions were much different then compared to now. Sadly too many gullible people keep falling for their hype..

ant:

15 Jul 2013 9:44:13am

All anyone needs to know is that austerity is like draining a car of petrol and still expecting it to run. It can't run, it has no fuel. And austerity is what is being inflicted on anyone with anything resembling a 'welfare state' i.e. a civilized state, so that the said state can be dismantled and open slather capitalism can be put in its place. That's the deal Abbott has done with Murdoch. Murdoch supports him in his papers and lies for him non stop and Abbott will do what Murdoch wants: whether it's with the NBN or the economy or the civil society we have which Murdoch wants destroyed.

Vandely:

v:

15 Jul 2013 3:53:31pm

ant,

Actually its more like closing down your corner store to save money.

Yes, it cost money to run a corner store but, if you don't run it, it will not make any money.

Swan got it right in 2008. If you want to make money, you have to do business. Shutting up shop can eliminate your entire income, but it cannot eliminate your FIXED costs. The Greeks killed their economy stone dead and, in so doing, cut off revenue to the government, forcing it to increase its borrowings to unsustainable levels in order to fund its FIXED costs.

Economies are driven by demand. If nobody can afford to buy what you make, there is no point in making it. The way to revive an economy is to invest in it.

Breach of peace:

15 Jul 2013 9:45:01am

It doesn't matter if it comes from the politicians or officials from the Reserve Bank it is a semantical war or double-speak as they are constantly trying to re-invent new ways and new speech to confuse the public. The Central Banks should be dis-mantled as they have far too much power and influence over a sovereign nation compared to its citizens the electorate.

By the de-regulating of the Glass-Stegall Act and many other areas of safety in the US the white collar criminals have pillaged and plundered the American people to the tune of approximately $18 trillion dollars! The Reserve Bank is just another private cabal banking institution by the Rothschilds and others to control countries financially and to enforce their will onto sovereign nations with their fractional interest rates that weaken society and the country at large. The re-installing of the Commonwealth Bank should go back to the people of Australia not to private banking cabals that only are there to take advantage of countries and to continue their greedy obscene profits.

Dazza:

15 Jul 2013 12:11:31pm

Depends on how you look at it, Bret?

If you vote Labor, then none of those responsible for the GFC have been charged!

If you vote Liberal, then none of those responsible for the GFC should be charged because the GFC was all Labor's fault, so they could, according to Tory Boy, make their "bogan handouts", or the economic stimulus to normal folk!

In reality, I think that some of those responsible have faced courts from what I remember reading. I need to do some research.

Bean Counter:

Reinhard:

15 Jul 2013 3:15:27pm

Don't you mean GW Bush? Clinton put through the Gramm-Leach-Bliley Act (GLB), which only partially repealed the Glass-Steagall Act, but that was in 1999! The GFC was caused by Bush and the SEC changing the net capital rule, and raised banks? debt-to-capital ratio from 12:1 to 30:1.

v:

"Have any of the Fat Cats responsible for the GFC been charged with crimes?"

There are those who would love you to believe that the GFC was caused by the poor behaviour of a few "fat cats", but they are not the sort of people you should really be listening to.

The GFC required no independent "cause". The seeds of the GFC and every other collapse experienced by capitalist economies can be found in the very nature of capitalism itself.

Our problem is that, when capitalist markets are in an expansionary phase (eg: between 1996 and 2006) everybody agrees that capitalism is a wonderful thing, that the "bad old days" of recessions and inflation are over and the economy is finally working as a capitalist economy should. But, if you look through the history of capitalism, it is plain to see that these expansionary phases are the exception rather than the rule and that most of the history of capitalism has been characterised by warfare, economic depression or recession and envrionmental degradation.

The GFC was not caused by the actions of individual human beings who chose to broke the law. It was caused by a defective system that only ever worked properly for a couple of decades three hundred years ago. Since then our society has been like a heroin addict, going through "bummer" after "bummer" in the vain search for a repeat of that first "high". Capitalism had its day. none of us were around to see it. It hasn't worked for three hundred years. Perhaps we should give something else a try.

Serenity:

15 Jul 2013 10:46:08am

There was a great investigative article in a recent Rolling Stone magazine.This was about the banks being the cause of the financial crash. With Moodys & Standard & Poor being collaborators giving AAA ratings to banks that were on the ropes.

blax5 :

'Fifthly, it points to the excessive influence of governments on markets. ......' This says that governments ought to butt out.

'Sixthly, the process is undemocratic. Unelected officials, with limited accountability, ........................' This says that elected oficials, thus the government, ought not to be sidelined, i.e. butt in.

stj911:

15 Jul 2013 11:01:15am

Its too many unelected people in positions of power which can hold sometimes extortionist positions on whole economic regions of the world. Ratings agencies being the clearest example. AAA Rating 65 trillion of toxic/genie bottle debts and then using them to suck real collateral out of whole countries to make the pathological criminals look like they have a credible lean on their fake loans. Markets should take one day a week off to absorb the over reporting of everything. Interest rates should be set once every six months or more giving everyone more certainty.Accountability should be king in a world of nano second trades and complex algorithms which go horribly wrong. Wearing a Tie doesn't make you intelligent.

Gone to the races:

Notfooled:

15 Jul 2013 11:09:54am

We need to dig deeper to see the truth here friends. This level of discussion is hardly scratching the surface. I never thought of myself as paranoid but a discussion on a flight with a very rich person got me looking a bit deeper. This whole monetary system is merely a front. Try watching the Thrive Movement movie free on the net for a start and then test what you hear and see. So far, they are bang on the right track and there is much, much more to discover. Enough I say, let's take action before it's too late ! No mention of the IBS here Mr Das ? Or the Bilderberg Group ? Or etc etc etc ? I would love someone with your intellect to go and discover what you can and then come back and tell us Drummers what you find . Peace to all.

Steeden:

15 Jul 2013 11:19:14am

If only the rest of the world had of followed Labors Stimulus plan that saved us through the GFC ,other countries would be sitting pretty like us,but instead they followed the liebrals plan and look what happened to them..so sad.

C Ash:

15 Jul 2013 1:03:02pm

You have no idea of what caused the GFC do you? Most of the countries that participated in it already where hocked to the max, both their banks and their private sector, so when the merde hit the fan they had nothing in reserve. Australia, thanks to the foresight of Hawke/Keating and Howard/Costello had cash reserves and no debt, plus China buying all the dirt we could dig up and ship to them. Rudd/Swan and Gillard then decide that we where about to go into the merde that most of the rest of the world where swimming in so bribed as many voters as he could with the cash that previous governments had saved. Now we have him back and billions of debt, go figure that one PS If the rest of the world had spent the way Rudd did there would more economic problems than the world has now, they had nothing more to spend.

GraemeF:

15 Jul 2013 4:04:35pm

Austerity in the US and Europe was a method of screwing the average person to bail out the banks that had made bad loans in the belief that the property bubble would never pop and their synthetic derivatives would save them if there was a downturn. It was a complete failure of private capital to regulate itself and was only saved from its own greed by government intervention .

C Ash:

15 Jul 2013 5:15:17pm

Regardless of what austerity was or is in Europe, something I did not mention, however you went off on that tangent so I will reply. Here in Australia we did not need to bail out the banks by screwing the average person as you put it. Thanks to the measures put in place over the previous ALP government and continued by the Liberal government our finances and economy were in good shape. The Asian crisis was a bigger threat than the GFC, no government at that time saw fit to blow the bank as Rudd did in response to the GFC. We survived very well. Rudd is responsible for the current debt and is back to inflict more damage. While there have been very good ALP governments in the past and bad Lib ones we are currently saddled with one of the worst of all time.

Tony P Grant:

The same can be said of the "Billionaire Class" who have of late tended to threaten our nations prosperity with issues of "withdrawing from projects" and to which political party goes the spoils?

Mr Zeitgeist does point out the "elephant in the room" cost cutting and efficiency.. to the advantage of all the vast majority of Australians both domestically and our foreign aid (boarder protection) plus?

Steve:

BIS: And, most of all, central banks cannot enact the structural economic and financial reforms needed to return economies to the real growth paths authorities and their publics both want and expect.

What central bank accommodation has done during the recovery is to borrow time - time for balance sheet repair, time for fiscal consolidation, and time for reforms to restore productivity growth.

Das: Regrettably, the purchased time may have not been used productively, creating new dangers for the global economy without having dealt with existing problems.

Huge amounts of public debt has been run-up by politicians in order to buy time, but they have not carried through with the tough, politically-risky microeconomic reforms that -gasp! creates 'losers' and not just 'winners'.

Shane:

15 Jul 2013 11:59:25am

The basics of our economic system seem to elude so many - although many are addicted to our current system of money as debt.

A totally free market would mean those born in areas with great resources would live at a much higher standard - a fact that many would claim is unfair (all men created equal and all that) but those same masses will defend "their" country's resources with vigour. In a world without borders - economic, ethnic or racial - a free market may provide equilibrium to most. In reality, governments and their citizens are hardly willing to have their entire pool of resources divide up and distributed world-wide.

So in place of a "free" market, we have our current system with high levels of "power" allocated to the few - some elected officials, so not. We have economic "mechanisms" designed to support limitless growth, needed to service the ever growing levels of debt at local, national and international levels. The reality is, unless we're prepared to accept continual "quantitive easing" to redistribute debts, we will never achieve a balance in economics.

In my opinion, biggest danger to this model is the increasing gap between the "haves" and the "have nots." A system of continual growth is fundamentally unfair to those at the lowest end of the scale and cannot be used to justify increases in living standards of those in so called "1st world" countries.

rpalmer:

15 Jul 2013 12:13:19pm

The whole de-regulation and consequent bailout by governments has lead us down a path to which there is going to be a lot pain experienced by those who have nothing to do with the whole issue (the general public).

Many governments are now essentially controlled by private organisations (banks).

It was asked on a documentary "are banks a business or a utility?" if you save business then they should now be regulated, since the free-market has left us in a bad way. If you say utility then we wont have the same patterns of growth of the past as regulation controlled the excesses we have seen recently.

Pat:

15 Jul 2013 12:16:24pm

It is the power of capital; the power of money and the power of the few who have and who control the money. That is the nature of the capitalist system where the capital is supreme and the rest of us are sub-servants to the capital and the few who control it. That is where the real power is. Some na?ve people believe that, just because we live in a 'democratic system' that it is the people through their elected governments who are in power. Satyajit, as an economist, you know better. You would be aware that democracy is incompatible with capitalism. Democracy talks about 'equal power sharing'. However, capitalism can only exist if it has the supreme and unchallenged power over the capital which has power and control over people. That is what the capitalist system all about. I am therefore surprised that you are surprised by the power of the capital and the few who own and control it.

v:

"Some na?ve people believe that, just because we live in a 'democratic system' that it is the people through their elected governments who are in power. "

Yes, it is rather sad, isn't it.

The problem is that we have accepted an early prototype (liberal democracy) as the finished product. We DO NOT live in a democratic society at all. And, while it is still possible for wealth or economic weight to give one human being power over another, we will be as far from democracy as we ever were.

Liberal democracy was a very creditable first attempt, but it was ultimately based on some rather muddled and inconsistent philosophy and, as such, was bound to fail. It failed in 1914 and it has been failing ever since. As a result, our society is LESS democratic than it was in the 1920s, while the emergiing socialist democracies of Latin America are providing their citizens with access to steadily improving rights and freedoms.

We need to remember that there is a large difference between "liberal democracy" andthe real thing. And we need to stop reacting negatively and defensively every time somebody suggests an improvement. The Latin American nations bore some of the worst effects of the failure of Liberal Democracy and "free trade", so it understandable that they would be among the first societies to look beyond liberal democracy and see a world of expanding freedom and equity. We should be taking notes.

PScott:

15 Jul 2013 12:24:52pm

Let's hurry up and get that 0.2% tax put on all speculative and dubious financial transactions (like 'derivatives'), and especially those transactions that are carried out in rapid successions. That should cool the egregious speculators down and provide some cash for valuable infrastructure projects.

Amethyst:

trevor:

15 Jul 2013 1:02:41pm

Whilst the Libs/Nats try to paint Kevin Rudd as a circus performer, their finance team of Stan Robb and Oliver Hockey continue come up with unsubstantiated costing numbers. When are they going to get their act together?

Notfooled:

15 Jul 2013 2:05:22pm

Maybe when One K Rudd finally announces an election date and everyone can see the REAL numbers ? That won't happen until the ego of El Presidente has been fully rebuilt though, despite making rapid headway in a couple of weeks !

v:

15 Jul 2013 4:53:19pm

fooled,

"Maybe when One K Rudd finally announces an election date"

The election will be held between Augst and December this year, and that is pretty close to what the financial markets have known this far out from previous elections. Why should things suddenly be so different this time around. Oh! That's right, I forgot. Crybaby Abbott still hasn't accepted OUR VERDICT, delivered in 2010. Mr Abbott failed. He was beaten by a girl. He has been whingeing about it, and demanding a re-match ever since.

But Abbott would not be a Tory if he could accept defeat like an adult, would he? No, Tories are simply people who refuse to accept the responsibilities of adulthood and continue to blame the "evil universe" for all of their self-inflicated woes.

Politics is for grown-ups. We should ignore the whingeing, spoilt two-year-old in the budgie smugglers and get on with it.

Reinhard:

15 Jul 2013 2:50:36pm

To add insult to insult Hockey came out with this blatant lie about the carbon tax.,."The fact that they say they are going to abolish it [the fixed price] means they are going to have a black hole of up to $15 billion in the Budget.Politifact has rated it as mostly falsehttp://www.politifact.com.au/truth-o-meter/statements/2013/jul/15/joe-hockey/early-ets-would-hurt-budget-how-much/

Alpo:

16 Jul 2013 6:13:13am

"Politifact has rated it as mostly false".... "mostly"? Do Politifact mean that there is a tiny, minishred of truth in Hockey's statement?... How could have he achieved that?... It must have been his lucky day.

Robert:

15 Jul 2013 1:44:57pm

You can call it what you like but it all come down to the same thing in the end,hyperinflation and economic collapse.It's been tried before and it doesn't work,just ask the Germans,and it won't work for America also.

R. Ambrose Raven:

15 Jul 2013 2:39:45pm

What central bank accommodation has done during the ? ha, ha ? ?recovery? is to borrow time - time for the filthy rich to offload dodgy assets at half-way reasonable prices, time for Big Bank balance sheet consolidation, and time for the rich to get rich and stay rich before the debt overhang collapses. It was to be expected that they would be ferociously hostile to heeding Marx's point that the devaluation of such wealth during capitalism's periodic economic crises was an inevitable outcome of that process of wealth creation.

Every post-war recession ended when private debt started to grow more rapidly than GDP ? such expansion is not ?growth? but an inherently unsustainable debt-driven asset-price bubble. Roubini and Keen amongst others believe that the 2008 crisis marked the inflection point of that unsustainable trend, commencing deleveraging on the scale of the Great Depression.

Political need to keep the bubble inflated drove most central banks to react with extravagant printing of money plus massive foreign exchange intervention to keep demand and job creation robust despite stagnating incomes and increasing inequality. Such a policy did postpone collapse, but by delaying the inevitable has merely increased the massive costs of doing so, plus obstruction of effective remedies. No useful solution has been put forward in the time thus gained. It has however demonstrated that the supply of money is far less important than the capacity and willingness of an economy to use it - far from money being the key parameter as was argued by Friedman.

Bernanke's own approach is also in conflict. His policy benefits leveraged speculators while punishing the prudent savers he professes to desire (Keynes' ?euthanasia of the rentier class?), and stimulating the social inequality and unrest he professes to oppose.

In truth, the Fed serves the interests of leveraged speculators, meaning that it will continue printing money for their benefit until something somewhere else collapses.

Because the massive level of private debt accumulated over the previous 30 to 50 years is now slowly being paid back leaving less private sector income available for spending. This results in a huge deficit in aggregate demand.

So what can we do about it?

Create more demand by simulating spending and implement structural reform to improve productivity.

How?

More public spending, lots more. And it must be WELL TARGETTED (i.e. investment in infrastructure and things that improve future productive capacity, like education, telecommunications and national health).

This will not produce inflation while private debt deleveraging remains an overwleming economic force.

Clearly, the private sector REFUSES TO SPEND more at the moment, despite s**t loads of "free money" being spewed forth by central banks, so public spending is needed to "fill the demand gap" to create economic growth and full employment.

So what are most Governments doing?

The opposite, austerity, cutting spending and protecting vested interests and TBTF incumbents from responsibility for their past actions. However, governments outside the EU (i.e. sovereign ones) can spend whatever is required to make up the necessary demand (because they issue the currency in which they spend) but THEY REFUSE TO DO SO. Central Banks try to make up for deficient demand by creating more currency but they issue it as DEBT not increased SPENDING.

Paul Taylor:

15 Jul 2013 3:05:22pm

Agree with the summation of the 2012/2013 annual report by the Bank of International Settlements, the banker to central banks....Australia needs to concentrate on new policy infrastructure strategy. Satyajit, as you say we cannot rely on monetary strategy which only buys us time. However, we need to include the environment & climate change in our economic deliberations & build an alternative economically sustainable role model.

The Federal Government Great Barrier Reef 2011 report card released in July 2013 shows that the health of the Great Barrier Reef has dropped from moderate to poor...seagrass is in very poor condition. Building two new giant coal terminals, for Alpha Coal & Waratah China First, at Abbot Point...requiring extensive dredging to accommodate bulk coal carriers ...is only going to exacerbate the problem; particularly when you have an alternative option that uses ships 1/3rd the size with the privately funded $45billion Project Iron Boomerang, exporting value added steel slabs without waste.Thermal coal is part of a boom or bust resources industry. About 7,000 coal industry jobs have been lost across QLD in just over a year. The QLD Bowen & Galilee Basin coal projects worth billions of dollars have been cancelled as the coal price drops....Investment in increasing supply of raw resource materials, not just in Australia but worldwide, was always going to lead to oversupply & subsequently a drop in commodity prices. Surely it makes more economic sense to concentrate on producing the worlds cheapest high quality slab steel for both domestic manufacturing & export consumption!....Irrespective of high or low commodity prices Australia can through productivity & competitive advantage produce the cheapest steel & with it job security, increased government revenue ( greater taxable company profits & income tax receipts etc.) through value adding & industry stability.

Labor with PM Kevin Rudd are introducing an Emissions Trading Scheme (ETS) 12 months in advance...Coal subsidies or reimbursements in place for the current carbon pricing should be reduced, primarily in line with ETS pricing, in order to create a revenue neutral budget bottom line. Currently brown coal producers in Victoria receive $5.5 billion in compensation for a carbon price...it could be substantially lowered under an ETS....continued

Paul Taylor:

15 Jul 2013 3:07:46pm

continued...The Coalition when it talks of cutting Green & Red tape refers predominantly to current carbon pricing, the Minerals Resource Rent Tax & environmental regulation...it is totally out of touch with the impact of man- made climate change & a post GFC economic strategy. There are very real concerns about the safety of coal seam gas (CSG) wells (16) on the water catchment between Wollongong & Sydney - The NSW Planning Assessment Commission has ordered a halt to drilling. The NSW Chief Scientist is also inspecting the Santos? Pilliga operation. IN QLD Gladstone planned CSG supplied LNG processing plants will probably reach completion as port dredging to accommodate super tankers has already taken place...but what if CSG has no expanded future?

PM Kevin Rudd, currently visiting PNG will no doubt revisit the PNG ? QLD proposed natural gas pipeline. The proposal has already been exposed to an Environmental Impact Assessment (EIS) study & looked at by the Australian Competition & Consumer Affairs Commission (ACCC) & given the green light. The pipeline would connect with the NT & existing natural gas pipelines to service the southern states. Customers committing & backing off, political unrest in PNG & cost blowouts have been a problem in the past....The privately funded $45billion Project Iron Boomerang with backup supply to Gladstone could provide the catalyst synergies to benefit the economic viability of all players. Project Iron Boomerang, together with carbon capture, storage & utilization would generate even greater global carbon credit offsets with an ETS in place; particularly if natural gas could be provided through the Woodside Petroleum natural gas consortium Browse Basin WA to supply energy for steel processing & general energy consumption in that state.

You project further & Australia could be looking at a circular electricity grid ( QLD, NT, SA,VIC &NSW), based on large scale solar thermal electricity production in Central Australia, servicing not only the domestic market but also electricity exports to Indonesia.

stephen:

Steve Mount:

15 Jul 2013 3:43:02pm

There are reasons why those in the central banking industries, and indeed, the everyman banking and finance industries, are there in the first place... financial power at the fingertips (quite a strong drug, I would imagine), access to a great, if not huge, personal income, and no need to get the hands dirty. Possibly also that they're too lazy, or useless, or cerebrally lacking, to do anything else.

But most of all : no liability. They are practitioners of an inexact science, wherein no guarantees of their toils are ever given, simply because they can't be. Thus, regardless of outcome, they are never to blame.

Imagine, the power to ruin individual lives, families, whole industries and even a nation's economy, with a poorly judged, or misguided, stroke of a pen, or the click of a keyboard, and the ability to shrug it off.

aletheia:

15 Jul 2013 4:13:39pm

I always thought that people who wrote "NWO" were some sort of 'conspiracy nuts' - but not any more, because I wish to propose that what we are seeing - and have been since Thatcher's 'there is no society - TINA!' and Reagan's 'voodoo economics' - is an NWO by 'stealth,' whereby <1%-economics is being forced upon us, under disguise.

Q1: Anyone remember "What would you like - irrational economics?"

Q2: Does anyone remember, being fully and fairly informed, actually voting for any particular part of 'economic rationalism,' or did they just vote for some spiv in a suit, who then began the 'neo-liberalisation' of the Aus economy, and thus the dismantlement of "the Enlightenment" - essentially by stealth?

Go here for the WC10Ps: en.wikipedia.org/wiki/Washington_Consensus#Original_sense:_Williamson.27s_Ten_Points

But they are not independent; yes, they are *theoretically* detached from government, but fall immediately under the influence of any lobby who cares to shout, as we continually see with calls to the RBA to 'drop interest rates, now!'

But not just lobbies. The Aus government, by 'signing up' to the WC10Ps has effectively abandoned economics as subject to democracy, ditto defence via alliance to the US. This process is on-going within the US-sphere. Additionally, FTAs incorporate US-law into local - and thus NWO is happening, independent of 'democratic' input, right under our noses.

Not only is the NWO being directed by parties essentially unknown (definition of conspiracy), apart from shifting massive wealth from the 99%+ in direction of the <1%, they have *no* other idea, *no* workable theory; *no* destination other than 'ever more $s to the ever more obscenely rich.' (Nooo; this is not 'wealth-envy,' just the facts as I see 'em.)

All this may have been obvious to some/many; my excuse is that I started from a position of trust. Now *all* gone.

R.Ambrose Raven:

16 Jul 2013 7:38:30am

But it is folly to follow the rest of the world into what is currently described as a decade of stagnation, when with climate change and resource pressures ?we? will of necessity have to make profound changes to ?our? lifestyle.

Note the ?we? and ?our?. Class warfare against working people ? the 99.9% - driven by the greed of national and international capitalist ruling classes is the dominant cause of the financial-deregulation-driven debt-driven asset-price bubble, the Great Recession that it caused, and the palliatives ? QE and Austerity ? that are intended only to serve the interests of the banksters and speculators ? to ?our? cost.

Growth is generally considered to be a good end in itself - but, not so openly, to maintain high asset values and continue the expropriation of much of the productivity surplus of labour by the financiers. Population growth is encouraged in order to maintain ?labour supply?, and to counter the supposed ageing crisis. Thus ?we? are trying to avoid a minor ageing 'problem' by stacking in more people, then incurring unaffordable infrastructure costs, paid for by mortgaging the whole country to foreign investors. All three in fact shift wealth from the many to the few, from the younger to the older, and from future people to the current filthy rich.

So forcing our ruling class to put ?our? needs ahead of their greed is the first great challenge ? indeed without defeating the ruling class little real progress is likely either regarding global warming or regarding resource pressures.

Far from simply providing endlessly growing subsidies for mediocre profit-seeker services, government needs to have a central role in driving not merely recovery but adaptation to what are profound changes. Plus much more rigorous efforts to end the materialism neurosis of consumerism and spectacular waste. Another Government Bank, for instance, to amongst other much-underrated roles puncture the Big 4 Bank oligopoly.

mahaish:

16 Jul 2013 9:21:21am

"Sixthly, the process is undemocratic. Unelected officials, with limited accountability, can by their words or actions trigger large changes in prices and rates, affecting millions of citizens and businesses, both domestically and in some case internationally"

central banks are constantly acting defensively against moves in the market. they cannot control the money supply, all they can do is peg the baseline price of money .

and they constantly over shoot or undershoot their policy objectives.

i dont agree with the proposition that a central bankers verbal utterences have permanant effects. ultimately market fundamentals overide this process.

what is far more questionable is direct intervention by central banks in their intermediation of financial assetts in the banking system.

fed qe 1 , was all about the fed making a assett market for bank assetts which couldnt be sold at any price. basically saving wall street.

what should have happened , is that these entities that were facing insolvency , should have been nationalised and then re sold to bankers who could do a better job of managing these business's

fed qe 2 , was all about flattening the yield curve across the entire maturity structure.

that seems to have worked a little.

ultimately the cetral bank is god because it has the power of infinite liquidity, and is basically able to manipulate the price of money. but once we hit a zero rate target or there abouts , the jig is up.

the fed has done a good job of helping the banks repair their balance sheets, but thats only half the problem.

and if we are worried about the public debt, well then dont issue any. under current interest rate targeting regimes, there is no need to issue public debt accept for some blind neo classical ideoloigical obsession.

the government can simply create deposits without creating any debt.

and before i accused of advocating money printing, i pose a very simple question.

whats more inflationary, a treasury reserve add to the banking system, which eventually ends up as a deposit, or a treasury bond.

its a trick question,

once we understand the mechanics of how central banks operate, we understand that such a question is actually posing a false dichotomy.

R.Ambrose Raven:

16 Jul 2013 9:38:48am

As bankster dishonesty (a tautology?) in the financier-driven crisis in Europe regularly demonstrates, we need to create another Government Bank not only to counter a credit crunch, and to take over failing profit-seeking institutions at minimum public cost, but also as a central part of industry policy.

Re-creation of a government bank (a full-service trading and savings statutory authority banking conglomerate, with accountability only for strategic issues) could do a lot of good things:* Focus on building industry, not usury; - biomedicine and scientific instrumentation. - space and remote sensing (cf Newsat's need to go overseas for funds). - early to mid-cycle technology/manufacturing firms.* Explicit rejection of "growth" in favour of "sustainability" as the measure of success;* Low-interest housing loans, from funds supplied by Treasury where extra is needed;* Recognition of the social consequences of lending.* Safety due to government guarantee of debts;* dealing with extraordinary events, such as financial crises, wars, conflict, and the sudden loss of international services;* Fees based on cost;* Infrastructure lender;* bridging lender to superannuation and like funds hampered by illiquid assets;* Government bond funder;* superannuation fund;* a trustworthy source of industry advice for government.* provide real competition with the profit-seeking bank cartel;* take over the assets and non-speculator liabilities (for $1) of collapsing profit-seeking banks - as the post-flog-off CBA had to with the flogged-off (ex-WA R&I) Bankwest in 2008. Recall that the Bank of England was created in 1694 to fund colonial and commercial expansion and its mercantilist extension - war.

Obviously such a bank would threaten transnational capitalist interests. Hence the banksters, Hard Right lobby groups, Right-wing ideologues and the politicians they own hasten to stifle discussion. CBA was profitable the entire time it was owned by the government. There is no rational basis for any suggestion that it would have been less so now. While the CBA was undercapitalised in Cheating's time, its flogging-off was a deliberate act of administrative sabotage to benefit its profit-seeking rivals.